The End of the Japanese Postwar System

Tabb, William K., Monthly Review

Economic miracles (Germany, Japan, Korea) come to sudden ends with monotonous regularity. But crisis seems often not to result in collapse. Instead, it is followed by long periods of muddling through. Japan is now in just such a period, and how - or whether - this key capitalist economy comes out of it may tell us a great deal about the future of capitalism in general.

The Japanese Crisis

It is difficult to grasp that the dead-end of the Japanese postwar system seems to be at hand. Neither conventional monetary nor fiscal policy measures seem capable of pulling Japan out of a slump that has lasted nearly a decade (and counting). But if so much of the old is no longer sustainable, there is understandable reluctance to embrace Anglo-American-style capitalism, and real fear that there is no viable alternative to continued stagnation.Japan demonstrates that what are loosely called crises can be fairly long periods of protracted and severe problems, which persist because the balance of political and economic forces does not permit the acceptance of an alternative regime.

While Japan's economy has basically stagnated since 1991, the situation will not necessarily lead to any comprehensive dramatic transformation. For the last four or five years, as each turnaround program has been announced for Japan, my judgment has been that they will muddle through as they have done before, making enough reforms to keep the system going, but that the rescue plan won't do much. The latest effort, the two hundred billion dollar stimulus (equal to 5 percent of Japan's Gross Domestic Product [GDP]) announced in mid-November by Prime Minister Obuchi, is unlikely to have much impact either, given the extent of overinvestment in the Japanese economy and the slowdown in global demand for its products. Plans to deal with the Mount Fuji-sized bad debt of the banking system is so tied up in efforts to bail out the ruling party's friends and the system which supports them that, despite the desperate situation, any talk of real structural change is suspect. In fact, it is not at all clear what Japan could do, which would help rather than hurt, that hasn't already been tried. The problem is a classic imbalance between overcapacity to produce and ability to absorb the surplus.

Traditional policy measures are unlikely to be sufficient, and the desperation many Japanese are feeling is unlikely to go away any time soon. The Japanese government has, to a significant extent, already tried all the proposed solutions without much success. It has built tens of billions of dollars worth of infrastructure, roads to sparsely populated rural areas, even railroads and bridges to reach isolated areas, but without much effect on the overall economy. The government has cut taxes by the equivalent of eight hundred billion dollars. But people save instead of spending their increased disposable incomes.

The government deficit is growing to record highs. While the total is not in at this writing, Japan's budget deficit for 1998 should be above ten percent of its GDP, and gross government debt is likely to exceed the national output for the first time. Japan's manufacturing facilities, with their substantial overcapacity, are deteriorating and are now less modern than U.S. plants, according to Japan Development Bank estimates. Further stimulation through expansive fiscal policy is unlikely to make Japan more productive. The money is likely to be spent on still more ill-conceived and costly public works projects. (The extent of construction industry kickbacks to the ruling party and the graft more widely attached to such projects is matched only by the proclivity for building bridges to sparsely populated islands funded by bonds which tolls will never be able to pay back.) The unsustainable growth rate of the national debt has led to rising interest costs for government borrowing, undermining the attempt to use monetary policy to stimulate the economy by lowering interest rates. …

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